The world of sales is changing, and sales compensation has always been an issue. How do you strike a balance between incentive and reward? In this interview with Geoff Vincent, we learn about a terrific sales compensation calculator that you can use in your business.
Q. Geoff, you’ve been in Marketing most of your career, so what’s your interest in sales compensation?
A. Firstly, I’ll say that I have been in B2B marketing for 20+ years and therefore have always worked closely with Sales. So I’ve made it my business to understand what makes a Sales rep tick, such as sales compensation plans. More recently, I was in a general management type role and had a sales team working directly for me so I was directly responsible to develop a sales plan to drive results, which would include sales compensation. I came to understand the importance of a good comp plan to drive results and also discovered that I like it.
Q. How did you come up with the idea of a sales compensation calculator? Why did you develop it?
A. Lately, I consulted at a small business that has a sales team. However, that team lacked any sort of compensation structure or plan that was tied to company objectives or actually communicated to reps what was expected from them. The solution I suggested was to simply provide a sales rep with performance expectations that indicated minimum requirements but also incentives to overachieve, all tied to company objectives. Finally I thought, what better way to communicate all this than in a sales compensation calculator.
Q. What is the business principles behind the calculator?
A. In short, it’s Pay for Performance. The idea is that a company should always pay fairly for performance delivered. Specifically, a company should outline objectives (quotas, if you like) for a sales rep and expect a minimum level of performance in exchange for salary and commissions. But the company should also pay incrementally more for above-and-beyond performance.
Q. What are the key elements of the calculator?
A. There are four key elements:
Firstly, pay a sales rep salary plus commissions. Secondly, assign a sales quota which is measurable by a time frame (monthly, quarterly, etc.). Thirdly, expect a certain level of performance for the salary. This is typically expressed as a % of quota, say 80%. Call this the commission threshold. Lastly, pay commissions after a rep achieves their threshold and accelerate that commission rate after the rep hits full quota.
Q. Who uses the calculator? Who is it really for within a typical company?
A. The calculator can be used by a CEO or CFO to plan and forecast cost of sales at various performance levels. A sales rep (or sales manager) can use it to calculate probable and potential earnings based on varying sales achievement levels.
Q. Any final thoughts about the sales Compensation calculator?
A. Yes, a couple, Firstly, it’s a flexible tool. For example, although I advocate a salary & commission pay structure, the calculator accommodates 100% commission scenarios too. Secondly, while this is designed for smaller companies who do not have a formal performance management methodology in place for their sales reps (nor have the expertise in-house to create one), it can also be used by larger companies where a simple plan may just be the better way.
The 4 point sales comp schema described above is available as an online tool or as an excel download at Sales Compensation & Commission Calculator.